Are you looking to live debt free? It is an admirable goal and one that can help you build personal wealth without spending tons of money on interest and bank fees. Perhaps you want to improve your credit score, or just want more guilt-free pocket money every month. Great! But which debt should you tackle first, or should you simply give all your debts a little love each month? Let’s check out the best ways to achieve your goals.

Do You Have Good Debt or Bad Debt?

According to financial experts, your largest loan may not be the thing that is creating havoc with your credit score. A good debt is something you have that helps you improve your life such as a mortgage or student loans. Your bad debt, the loans that literally consume more of your money and destroy your rating, include credit cards, pay day loans, personal loans, and even some car loans. The bad debt is the debt you should focus on erasing as soon as possible.

Reward Yourself Now or Later

So, which loans should you tackle first? If you have trouble sticking with a payment plan, you may want to focus on wiping out the smallest loan first. Pay the minimum on all the other loans and make larger payments on the little one. You will have the satisfaction of achieving your goal and give yourself the incentive to tackle the next debt with positive energy.

The next option will save you more money in the long run. Sort out which debt carries the highest interest rate and focus on paying that one down first. This will likely be a payday loan or a credit card balance. As that debt becomes smaller, more of the money you are using to get out of debt will go toward reducing the balance, instead of paying for interest and fees.

The End Game: Less than 35% of Your Income Devoted to Debt

What should be your final goal? Bring your total debt load–the payments you make each month–below 35% of your take home pay. This includes your mortgage and student loans. When you reach that number, you should have a healthier credit score and you will be able to open a new line of credit for a required purchase without a problem.

New Debt: Watch the Numbers

Once you clear all that bad debt, it may be tempting to open a new credit card that offers tons of points and rewards, but now is when your hard fought discipline should be put into play. Avoid impulse buys and stick to a cash-only diet as much as possible. It is far too easy to slip down the slope back into crushing debt. Instead, keep putting the extra cash you used to spend on paying down debt into a savings account, so you can pay for new purchases out-of-pocket. Only open a new loan after checking a personal loan calculator to make sure you aren’t going back underwater again.